RBS Agrees To Forgo Tax Deduction On Record Losses

by Jason Gorringe, Tax-News.com, London

02 March 2009

The Royal Bank of Scotland (RBS) has agreed to forfeit its right to offset record corporate losses against its future taxes as a condition of a deal with the government designed to prevent the stricken bank from collapsing.

According to Chancellor of the Exchequer Alistair Darling, RBS has agreed not to claim UK tax losses and allowances "for a number of years" in return for the government guaranteeing GBP325bn of the bank's assets.

Under UK tax law, company losses can be carried forward and offset against income for an unlimited number of future tax years. There is also no limit on how large a loss can be carried forward. However, these rules only apply to trading profits and not to other sources of income such as capital gains.

The UK loss rules were the source of much public indignation after it emerged last August that Merrill Lynch could minimize its tax burden in the UK for decades after suffering USD29bn in losses on its holdings of collateralized debt obligations, which were channeled through its UK-based arm, Merrill Lynch International.

On February 26, RBS announced a loss of GBP24.1bn for 2008 - the largest loss ever reported in UK corporate history. Another bank talking to the government about insuring its 'toxic' assets, Lloyds Banking Group, has revealed that HBOS, the troubled rival that it absorbed last month, made a loss of GBP10.8bn in 2008.

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